TURMOIL AT WORLDCOM: THE OVERSEAS REACTION

TURMOIL AT WORLDCOM: THE OVERSEAS REACTION; U.S. Businesses Dim as Models For Foreigners

By EDMUND L. ANDREWS

Published: June 27, 2002

FRANKFURT, June 26—
It was not just WorldCom that took a beating today. It was also the United States itself, and the American gospel of how business should be done.

After years of pumping billions of dollars into the United States because it seemed the land of opportunity, foreign investors are pulling back. And people around the world who for decades have looked to the United States as the model for openness and accountability in business have been sorely disillusioned by the mounting waves of scandal.

''This is the most pessimistic sentiment against the United States that I have ever experienced in my career,'' said Wolfram Gerdes, chief investment officer for global equities at Dresdner Investment Trust in Frankfurt. ''There is unanimous agreement that the U.S. is not the best place to invest anymore.''

The immediate impact is discernible in the value of the dollar, which has been sliding since March. It fell today to its lowest level against the euro in 28 months. The dollar has also fallen against the Japanese yen, and even gold has been rising steadily in dollar terms.

The loss of foreign confidence in the United States is important in itself, because of the huge deficit the United States runs in its trade with the world. To cover that deficit, America must attract a net inflow of $1.3 billion in foreign money every day. Even a modest decline in the flow can weaken the dollar and drive up the prices of imported goods.

But the fall from grace is broader than just a turn in the monetary tide. The more enduring impact of the accounting and boardroom scandals may be the tarnish they spread on the ''American model,'' a philosophy that emphasizes bare-knuckle competition, aggressive deal making, a high level of public disclosure and fantastic rewards for executives who deliver the goods.

Europe has had its own run of financial scandals, generally involving young technology and media companies, that match the worst cases to surface during the dot-com bubble. But Guido Rossi, a former chairman of Telecom Italia and now one of Italy's most outspoken advocates for modernizing the way companies are run in Europe, said: ''What is lacking in the U.S. is a culture of shame. No C.E.O. in the U.S. is considered a thief if he does something wrong. It is a kind of moral cancer.''

There is a groundswell among executives in Europe against the American system of corporate accounting -- the so-called generally accepted accounting principles -- that was supposed to be the gold standard in disclosure.

Before Enron, Global Crossing and WorldCom, America had been winning the argument on accounting standards. But now, a growing number of Europeans are convinced that the American system is both too complex and too easy to manipulate. ''We always thought it was too good to be true in America, and this has proved it,'' said Angela Knight, the chief executive of the Association of Private Client Investment Managers and Stock Brokers in Britain.

To be sure, American corporate practices in general remain at least as open and accountable as those in any other country, and they have raised the expectations that shareholders elsewhere have of their own companies. And most experts agree that the main problem is not with the principles themselves but with people who are determined to distort their companies' financial results.

European corporations like Vivendi Universal are reeling from shareholder wrath over their inscrutable finances and unsupportable debt. Deutsche Telekom, Germany's biggest telephone company, is for the second time in two years fighting off charges that it grossly overvalued billions of dollars worth of real estate before it went public six years ago.

In Germany, Italy and elsewhere, many of the biggest companies remain shielded from takeovers by byzantine cross-holdings and capital structures and by laws that arm entrenched management with a variety of defenses against their own shareholders.

Nor are Enron-like problems unknown elsewhere, as shareholders in HIH, a major Australian insurer, and Asia Pulp and Paper discovered last year when the companies plunged into default.

Indeed, advocates of improved corporate governance in countries like Japan say they only wish their companies were as accountable as those in the United States. The problem now, they say, is that the scandals in America will be used by opponents of openness and accountability to justify their intransigence.

''This has disappointed many people who tried to work to modernize themselves along the lines of the American model,'' said Haruo Shimada, a professor of economics at Keio University in Tokyo, who has pushed for freer markets in Japan and has been an adviser to Prime Minister Junichiro Koizumi.

In Russia, where corporate governance has all too frequently meant blatant theft and Machiavellian intrigue, corporate executives say the scandals prove that Russia is not so different from the United States after all.

''At a certain point, Americans began thinking that they were the ideal,'' said Anatoly M. Karachinsky, president of Information Business Systems, one of Russia's largest information-technology companies. ''But there are no ideal laws.''